Thursday, July 3, 2008
I want to summarize some recent market information for you on delinquency & foreclosure rates, REO properties, and news of a recent uptick in existing home sales. Then I will provide some practical analysis from a sales and marketing perspective, to give you some concrete things you can do to use this information to improve your strategic position in your local market and originate more loans.
REO Properties Account for about 14% of Inventory of Existing Homes for Sale; Banks Are Becoming More Aggressive in Lowering Prices for Quicker Sale
Lenders and investors in mortgages owned about 660,000 foreclosed homes in April, up from 493,000 in January and 231,000 in January 2007, according to First American CoreLogic, a research firm based in Santa Ana, Calif., that collects data from lenders and county clerks. The April total works out to about one in seven previously occupied homes available for sale nationwide.
Some lenders now are cutting prices as often as every 20 days on homes that haven’t sold, said David McCarthy, chief executive officer of Integrated Asset Services LLC, a Denver-based company that helps banks value and sell REO homes.
The REO glut is putting downward pressure on house prices in many areas, as banks tend to cut prices faster than other sellers. The Standard & Poor's/Case-Shiller index for the first quarter showed prices for existing homes nationwide declined 14.1% from a year earlier, compared with a year-to-year drop of 8.9% in the fourth quarter.
Delinquency & Foreclosure Rates Up; Especially for ARMs
The Mortgage Bankers Association reported that delinquencies and foreclosures increased at the fastest pace for borrowers with prime adjustable-rate mortgages, though borrowers with subprime ARMs still account for the largest share of problem loans.According to Jay Brinkmann, the MBA's vice president for research and economics, the increase in delinquencies has been highest in states where there has been a lot of overbuilding. New subdivisions in those states have seen the biggest price drops, he said, as builders have cut prices to reduce inventories. That has made it more difficult for borrowers in the same or nearby subdivisions to sell or refinance.
Nationwide, roughly 1.3 million homes were in foreclosure at the end of the first quarter, according to the MBA. Four states -- California, Florida, Nevada and Arizona -- accounted for 89% of the increase in foreclosures, but the rise in past-due loans was widespread, with delinquencies up year over year in every state except Louisiana. Thirty-nine percent of subprime ARMs and more than 10% of prime adjustables are at least one payment past due. Option ARMs account for much of the rise in delinquent prime ARMs, Mr. Brinkmann said.
“Bargain Hunters Have Entered the Market en Masse”
A leading gauge of U.S. home sales showed surprising strength, as falling prices began to entice buyers back into the market.April pending home sales -- meaning signed sales contracts -- rose 6.3% from March to a level of 88.2, the highest in six months, the National Association of Realtors said.
"Bargain hunters have entered the market en masse, especially in areas that have experienced double-digit price declines," said NAR chief economist Lawrence Yun. He said it isn't clear whether the buyers are investors or those who intend to live in the homes. The index covers sales of existing homes, about 85% of the market, but not new-home sales.
Despite the gain, pending home sales remain 13.1% below the 101.5 level recorded in April 2007. Sales in the Northeast slipped, but sales were strong in the South, West and Midwest.
Here’s My Practical Analysis:
The fact that bank REOs now represent 14% of the existing homes-for-sale inventory (about 660,000 properties) is significant. The fact that there are another 1.3 million foreclosures in the pipeline as we speak is even more significant. As a result, banks are further reducing asking prices on their inventory as often as every 20 days. This puts more downward pressure on the non-bank-owned inventory – as seen by the fact that the Case-Shiller Index shows first quarter 2008 home prices declining 14.1% from the same period in 2007.
Sounds pretty “lemony”, doesn’t it? So it’s time to make some lemonade.
As I have said so many times before, when market conditions change, you have to adapt and find a way to serve the people who will most benefit from those market changes.
So who benefits in a market like this? Buyers, obviously. This isn’t just a Buyer’s Market, this is The Mother of All Buyer’s Markets. We haven’t seen anything like this in at least 25 years.
More specifically, here are the kinds of buyers you want to seek out:
· Renters with good income and good credit. When I say “good income”, I’m not just talking about the amount. I’m talking about your ability to document it. (Stated Income is dead -- and deserves to be – I don’t know about you, but I’m tired of paying taxes for people who cheat on theirs, and it only added insult to injury that our industry was making it so easy for them to buy homes). Look for relatively upscale apartment buildings where rents are high enough to be roughly comparable to a mortgage payment. Look for non-owner occupied properties in good areas. Demographically, look for people under the age of 35, recently married couples, people who just had babies, and recent college graduates in their first professional jobs.
· Move-Up Buyers. Target FSBOs and Just Listeds, especially those who have been in their home for 10+ years. (They’ve been able to benefit from years of appreciation before the current buyer’s market kicked in.) Whatever they have had to “give up” to sell their current home, they can more than make up for when they assume the role of a buyer in this market. Get them to look at the sale of their home and the purchase of their next one as a unified financial strategy.
· Investors. Look especially for small or novice investors. Check out investment clubs in your area. Be a resource for people who are looking to capitalize on this market.
What do you offer these prospects? More than a rate quote and a free credit report or preapproval, I hope. Offer them something your competition hasn’t even conceived of doing: Position yourself as their Homebuying Coach – someone who will help them buy the right house for the lowest possible price.
Ready for a Little Sugar for That Lemonade? As noted earlier, we’ve just seen an uptick in existing home sales – and as the NAR’s chief economist put it, “Bargain hunters have entered the market en masse.” You know what bargain hunters want? They want a bargain!!! Position yourself as the professional who can help them find the right one.
For more information on positioning yourself as a Homebuyer’s Coach, watch my new online seminar, How to Succeed in This Terrible, Awful, No-Good Lousy Market, and read The Difference Between Hype and Performance.
And if you want some help getting started with this new approach to doing business in today's Buyer's Market, read below to see how you can get a free, personal coaching session:
How You Can Get a Free, Private 1-Hour Coaching Session with Bob Williamson
Would you like to close more loans?
Are you a loan officer or manager looking for sales & marketing training to improve your productivity?
Now you can get a free coaching session so you can find out for yourself whether coaching will help you reach your production goals.
You get to choose the agenda of this one-hour, private and personal coaching session. Whether you want to:
- Develop a winning strategy for your local market,
- Generate more leads,
- Close a higher percentage of your leads,
- Deal with a staff/personnel problem,
- Improve your time management, systems & organization, or
- Resolve a pipeline management problem,
The hour will be devoted to your priorities.
To Sign up for Your Free, Private 1-Hour Coaching Session:
Just click here and fill out the simple registration form.
I've found that giving mortgage professionals a real "taste" of what coaching is like is the best way to identify the people who will benefit most from it. At the end of your session, you'll be given the option of scheduling additional coaching, but there will be absolutely no sales pressure of any kind.